Samsung profit growth slows

TOUGHER TIMES:The company is counting on new smartphone features to spark sales amid competition from Chinese makers bringing out phones costing as little as US$100

Bloomberg

Samsung Electronics Co, the world’s biggest maker of smartphones, posted its slowest profit growth since 2011 as new Apple Inc iPhones lured high-end customers and gains in the Korean won curbed the value of overseas sales.

Net income, excluding minority interests, rose 5.4 percent to 7.22 trillion won (US$6.7 billion) in the three months ended Dec. 31, the Suwon, South Korea-based company said in a filing yesterday.

That was the slowest since profit fell in the third quarter of 2011.

Asia’s biggest technology company is facing a squeeze on profit margins as new iPhones and cheaper devices made by Lenovo Group Ltd (聯想) and Huawei Technologies Co (華為) crimp growth of Samsung’s Galaxy devices.

“Earnings will remain stagnant this year as the explosive growth of the past two to three years seems to have ended,” said Lee Sun-tae, a Seoul-based analyst at NH Investment & Securities Co. “Although the lower-end smartphone market will continue to grow, the scale of profit from that segment doesn’t compare to the high-end market, so the growth seems limited.”

The company also paid a special bonus of 800 billion won to workers to celebrate the 20th anniversary of chairman Lee Kun-hee’s new management strategy, it said.

Capital spending this year would be similar to last year, it said. The company spent 23.8 trillion won on capital expenditure last year.

Fourth-quarter operating income at Samsung’s mobile unit, the company’s biggest profit driver, was 5.47 trillion won, little changed from a year earlier and down from a record 6.7 trillion won in the third quarter last year, the company said.

First-quarter smartphone shipments are expected to rise at a “mid single-digit” percentage from the fourth quarter, while tablets are forecast to gain at a “high single-digit” pace.

Samsung, which sells about one of every three smartphones worldwide, plans to release the Galaxy S5 by April, pairing it with the successor to its Gear smartwatch, Samsung executive vice president of the mobile business Lee Young-hee said in a Jan. 6 interview.

The company is counting on new features to spark sales after its predecessor, the S4, fell short of analysts’ expectations amid competition from Chinese makers bringing out smartphones costing as little as US$100.

Samsung will announce at least one other wearable device this year, Lee Young-hee said.

Operating profit at Samsung’s chip division, a supplier to Apple, was 1.99 trillion won, compared with 1.42 trillion won a year earlier.

A fire at an SK Hynix Inc factory in Wuxi, China, in September last year pushed up chip prices, which remain near three-year highs.

The price of the benchmark DDR3 2-gigabit DRAM chip reached US$2.91 on Thursday, according to DRAMeXchange, Asia’s largest market for the components. That compares with US$1.60 on Sept. 4 last year, when the fire hit.

“The semiconductor business will perform better this year than last year,” said Lee Do-hoon, an analyst at CIMB Group Holdings in Seoul.